A small number of investors and operators have already entered the student accommodation market and are successfully building portfolios, whilst student enrolments continue to soar. In light of uncertainty in competing markets globally, and through the encouragement from all levels of government to increase international student participation, there are signs that the second wave of investors and operators are exploring ways of entering the increasingly competitive Australian student accommodation market.

The rising number of students in Australia – in particular international students – is having a direct positive impact on national and state economies. Australia’s annual education exports (international students) soared to a new high of $28bn in 2016/17, up 16% YoY.

Education is Australia’s largest service export and third overall behind iron ore (worth $62.8 billion) and coal ($54.3 billion). It is larger than gas ($22.3 billion) and gold ($19 billion). Although Australian universities have diversified their sources of income, on average almost 20% of their operating revenue is derived from international student fees (2015, DET) rising to 30% at some institutions.

There are 337,117 full-time higher education international students studying in Australia, but 93,890 PBSA bed spaces as at the end of 2017. This equates to a theoretical international student to bed ration of 3.6:1, highlighting the additional demand for quality and affordable student accommodation.

Key barriers to entry into the Australian market remain, including the availability of suitable land and the viability of student housing development against other land uses, alongside the lack of operational expertise. Of growing importance in the student accommodation sector is that of effective branding and marketing, whereby students are viewed as highly sophisticated consumers.

As a result, a lack of good quality and affordable PBSA bed spaces could be detrimental to a university’s reputation and ability to recruit the best students.

Paul Savitz, Director, Research & Consulting, Knight Frank said the locational preference of where students live is heavily influenced by the location of university campuses, traditional residential collages, accessible private accommodation, transport links and newly developed student housing. With over 47,850 potential new student bed spaces in the five year pipeline, concentrated (65%) across the three eastern capital cities, new areas of studentification will emerge.

“It comes as no surprise that investors and operators have targeted certain pockets for the development of purpose built student accommodation. City centre locations are favoured and will continue to be as suburban based universities, such as those in Perth and Melbourne (Monash, Deakin and La Trobe) build their CBD presence to primarily attract and retain postgraduate and business students, exampled by the recent leasing of 10 William Street by CQ University (2,100m² over four levels) and 750 Collins Street by Monash University (10 levels over 37,300m²).”

Mr Savitz said while markets such as the US, UK and Mainland Europe have had deep and liquid student housing markets for some time, Australia is beginning to catch up as global investor appetite increases.

“The second wave of the purpose built student housing market lifecycle will consist of established groups looking to scale up.”

“Portfolio consolidation, for operational economies of scale, will emerge over the next few years with some current groups exiting once assets are stabilised or operational, whilst others look to expand. At this stage we expect to see new entrants enter the market, with Australian Superannuation funds likely to become interested, alongside other global investment funds. It is also anticipated that there will be a blending of the PBSA and Build-to-Rent/Multi-housing sectors with groups targeting a longer life cycle of their occupants,” concluded Mr Savitz.

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Sage Media Group is based in Australia, specialising in trade publications across both print and digital media. National Resources Review is the flagship masthead and Build Australia is the company’s second title.